Rupiah set for another bad week

By Bernie K. Moestafa

JAKARTA (JP): The rupiah is unlikely to recover from last week's dip to the 10,000 level as worries over lingering political concerns, unresolved unrest in Central Kalimantan, and a planned increase in fuel prices will continue to undermine the ailing currency.

Analysts estimated the rupiah would remain weak, and was likely to extend its fall to test the next resistance level at 10,500.

A weakening rupiah would also drag down the Jakarta Stock Exchange (JSX) Composite Index, as investors fear a surge in foreign exchange losses for the first quarter of this year, one stock analyst said.

"There is no positive news to support the rupiah," market analyst David Chang at Vickers Ballas Tamara securities company said over the weekend.

He said the market saw no end to the multitude of problems the government had been dealing with for the past few weeks.

Racial conflicts in Central Kalimantan flared up again over the weekend when indigenous Dayak people attacked police officers in an act of revenge for the killing of a local by the police.

Aside from security concerns in Central Kalimantan, political tension would also weigh heavily on the market this week, Chang added.

President Abdurrahman Wahid's grip on power is seen to be faltering amid a series of unresolved problems.

Forecasts by People's Consultative Assembly Speaker Amien Rais that an impeachment process was inevitable, and growing support for Vice President Megawati Soekarnoputri to replace the President cast doubts on the future of Abdurrahman, who is popularly known as Gus Dur.

Many fear that Gus Dur's days in power are numbered.

The ongoing social unrest in Central Kalimantan, coupled with political uncertainties sent the rupiah plunging from 9,880 to 10,090 last week.

Chang said the government's plan to hike fuel prices was another risky move that would undermine Gus Dur's already tarnished popularity.

The government plans to announce on Monday whether to go ahead with plans for an average 20 percent fuel price hike on April 1.

A 20 percent fuel price rise has been accounted for in the appropriation of Rp 41.3 trillion for fuel subsidy in the current 2001 state budget. Without the increase, the government will have to cover a shortfall of Rp 4.3 trillion (US$430 million) for the budget.

However, the move is deemed to be political unwise amid growing criticism toward the government.

Last year, mounting opposition against the fuel price hike led the government to postpone the move from April to October.

Currency analyst Rico Menayang said that market sentiment had sank so deep, that it might take a change in power to improve it.

"As long as Gus Dur remains in office, political instability is likely here to stay," said Rico.

Analyst Pardi Kendi at Bank Buana said earlier the wave of bad news had triggered arbitration transactions between the local market and the rupiah deliverable forward (NDF) market in Singapore.

Arbitration is made possible as the NDF market quotes the rupiah lower against the U.S dollar, than the local market does.

Pardi said that traders bought dollars in the local market to trade them with rupiah at a cheaper price in Singapore.

Reports that IBRA would conclude its $350 million deal with Malaysia within the next few days could bring fresh hope for the Indonesian currency.

The Indonesian Bank Restructuring Agency's Asset Management Investment head Thomas Lembong said the agency would sell the dollars as soon as it received the cash from the Malaysian palm plantation firm Kumpulan Guthrie Bhd.

The Malaysian firm won a tender to buy 24 palm oil plantations formerly owned by the Salim Group for $350 million. The plantations are part of assets surrendered by the business group to IBRA as payment for its massive debts.

Stock analyst Adrian Rusmana at BNI Securities estimated the JSX composite index to remain bearish in line with the weaker rupiah.

The JSX Composite Index took severe beatings for two consecutive weeks, ending at 414.10 on Friday from its opening position at 426.13 on Tuesday.

Adrian said companies with U.S dollar denominated debts, and those dependent on imported raw material for production, were vulnerable to the rupiah fall.

"The worry is that companies' performance in the first quarter (this year) would drop due to larger foreign exchange losses," he said.

For this week, he said, the market saw no positive developments either on the political or economic front to uplift the rupiah.

"Selling pressure remains high for next week (this week)," he added.

Adrian predicted for this week, the JSX index would remain on a downward trend to end the week at its support level of 400.